Overview of the assumption process
Goals:
Educate on the basic process
Gently promote Providwell as a competent sherpa
Scare people a little. This might not be easy without help (and isnt worth thee risk)
Outline/Pertinent details:
Working with the servicer
Challenges of loan underwriting
Every Borrower is unique
Documentation requests and delivery can be challenging. The communication disconnect between a borrower’s real world situation and standard underwriting requirements takes nuanced management. Also, given the many formats that we access our info these days- what you send and what they need might not be the same.
Guidelines are a language unto themselves
Why assumption is more difficult that a regular VA underwrite
Servicer is protecting their portfolio
Underwrite to conservative standards
Operations staff is slow and overloaded. They also aren’t motivated to approve and ostensibly have cause to deny assumptions – (to protect their portfolio).
Why Providwell is uniquely positioned
We gather buyer credit file prior to the transaction
Our experience in origination and underwriting is applied to buyer’s file to establish qualification
We package documentation in a way that the servicer will know and understand
The VA loan assumption process –
Once a buyer and seller agree to the terms of the sale, the next step will be to begin the loan assumption process with the current loan servicer. The loan servicer is the organization to whom the borrower makes their monthly payment.
Remember, the loan obligation will shift from the seller to the buyer, but the terms- and servicing- will remain in place. It is the loan servicer’s job to process the assumption and determine whether the new buyer is qualified to take over the loan- per the VA’s underwriting guidelines and requirements.
The servicer will send out a packet for buyer and seller to begin working on. This will include a list of all necessary credit, income, asset, and employment information relating to the buyer. It is important to be thorough and understand what is being requested. This is where Providwell’s experience in VA loan origination and underwriting is critical. We know and understand what a credit package must entail, how it is reviewed and analyzed and what is acceptable and what is not. Before we allow a buyer to make an offer on one of our Vet’s properties, we have already gathered and reviewed all of their (the buyer’s) paperwork. This allows us to ensure a smooth and successful transaction.
The servicer will undergo a credit underwrite similar to a traditional VA loan process. The key difference is that the servicer may apply a conservative approach to its review. Remember, this is their portfolio of loans and they are entitled to protect it by keeping the quality of borrowers high.
Challenges of loan underwriting:
Every borrower is unique. Every transaction has quirks and nuances. Even traditional loan underwriting can be challenging. VA loan assumptions have uspecific challenges that make them harder to manager and less likely to succeed.
With a traditional VA loan origination, there is a loan originator whose job is to usher the transaction through the process and help yield approval. Hopefully, this originator is experienced and highly motivated to ensure success. Additionally, most VA loans get an Automated Loan approval through a computer program which potentially allows for approvals with very low fico scores, exceedingly high Debt to incomes and other unconventional aspects.
A loan assumption is processed by an operations team at the loan servicer. There is no commission or motivation for closed transactions. Rather, an existing borrower with a good pay history is arguably preferred to an unknown new borrower. VA assumptions are all Manually Underwritten- a type of review that is held to much tighter credit standards. This includes requirements for a low Debt to income of 41%, 2 years at current job, impeccable credit. A single late payment of any sort within the past 12 months will likely disqualify the borrower. The VA loan guidelines are filled with areas of underwriter discretion -and It could be inferred that there is an abundance of caution to disqualify assumptions rather than approve.
The initial underwrite may take a few weeks, at which point, the servicer may request additional documentation. Upon furnishing it, there will be subsequent reviews until the file is either approved, or denied. This process may take up to 45 days- depending on the complexity of the borrower’s file, the servicer’s workload and the efficiency by which the borrower manages the paperwork requests.
Similar to a traditional origination, the servicer will send out mortgage disclosures by mail or through an eSignature. Throughout the process, there will be re-disclosure, loan estimates, closing disclosures – all have timelines associated with them. It is important that the borrower understand which are merely notice (the actual terms aren’t binding and may be estimates) versus which are representative of final numbers – and must be reviewed and scrutinized for accuracy.
If the file is approved, loan documents will go to the chosen escrow company to arrange for signing, title insurance binding and other closing requirements. Buyer and seller will sign all pertinent documents relating to the assumption and sale. The transaction will record and officially change hands.
At this point, the seller is officially relieved of the financial obligation of the loan and no longer owns the home. The loan will show as paid on the seller’s credit report and will begin reporting on the buyer’s credit report. The buyer will receive a welcome letter from the servicer with information on how to set up an online acct, make payments, etc.
If the loan was assumed by another veteran, then the use of entitlement guaranteeing the loan may transfer to the new owner. If the loan was assumed by a non-veteran, then the Vet’s entitlement will remain tied up until the loan is paid off through refinancing, sale of the property, or regular mortgage payments. Once the prior owner’s entitlement is eligible for restoration, the vet must contact the VA to process the restoration.
Assumptions are a valuable tool but tricky to navigate and can hold more pitfalls than a traditional mortgage. Providwell will get it done.
Fees – Assumptions carry many of the same costs as a traditional VA loan origination.
These include:
An assumption funding fee (paid to the Debt of Veteran’s Affairs) equal to .5% of the loan balance
Credit report fees
Title and escrow fees
Recording, courier, e-doc fees
Impounds for taxes and insurance
Pro-rated taxes back to the seller
One year’s worth of Home Owner’s insurance
With Providwell’s business model, the sellers generally do not need to cover any of the costs of the transaction.
